Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – March 18th, 2008

$200 Billion Line of Credit

Wow!  It’s harder than ever to keep up with what’s happening on a day-to-day, or even minute-to-minute basis.  The Fed has come up with some unique managing tools to help spur economic stability and facilitate assistance with the liquidity crisis.  Initially, we’ve discussed Term Auction Facilities (TAF) and now we have Term Securities Lending Facilities (TSLF), which were introduced to funnel banks with an additional $200 Billion to draw on.  Let’s get into the grease of what happened this past week…

Carlyle Group, which manages mortgage backed securities, couldn’t meet their margin calls that we talked about last week.  So, just like people can buy a home on a short sale right now, and pay less than what the previous owner owed, savvy investors are capitalizing on Carlyle Group’s hardship. 

Did YOU Buy Gold?

Gold reached $1,000 an ounce and oil just keeps going up.  My uncle has been telling me to buy gold for about three years now.  Telling me this would happen.  Shoulda listened…

Retail sales were down, indicating that people just aren’t spending what they used to.  Interestingly enough, Jobless Claims moved down to 353,000.  So, the four week average of these claims moved slightly down to 358,500.  We’ll have to continue to keep a close eye on this weekly report. 

Bear Stearns announced on Friday morning that their liquidity position has worsened to the New York Fed and JP Morgan Chase having to step in and rescue them from going out of business.  Bear Stearns!  They’ve been around for over eighty-five years!  So, coupled with some tame inflation readings from the Core Consumer Price Index (CPI) at 2.3%, this gave the Fed the room for a .75% adjustment to their overnight rate.  But the surprise was the Fed’s weekend lowering of the Discount Rate by .25%.  This hasn’t occurred in over thirty years and is quite interesting since they were meeting just one day after the surprise move. 

Learn from History…Overnight Cuts HURT Long Term Rates

The Bear Stearns announcement had JP Morgan Chase buying their stock at $2 per share when they were trading this last year at $160 per share.  Stock markets worldwide were stunned by the move and they plummeted, giving interest rates a huge bonus opportunity for many.  5.5% with an APR of 5.718% were locked in all day long…but as soon as we went into Tuesday, and the Fed did in fact lower the overnight rate by the .75%, rates moved up rapidly.  History has shown us that after a fed cut, rates might get better initially, but very quickly move in the opposite direction.  So, with this cut, the markets are learning in a “pavlovian” way that rates are going to go up.  It’s what this article has preached for months.  So, enjoy the ride.  There’s more to come next week…until then…

This entry was posted on Tuesday, March 18th, 2008 at 6:34 pm and is filed under Home Buying, Interest Rates, Weekly Market Report. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Leave a Reply

Name (required)

Email (will not be published) (required)

Website